BUSINESS INCOME COVERAGE DOES NOT APPLY WHEN NO DIRECT PHYSICAL DAMAGE.
Sourcefood Technology, Inc. v. United States Fidelity & Guaranty Co. U.S. Court of Appeals, 8th Circuit. Filed October 13, 2006.

The plaintiff sells cooking oil and shortening containing a beef product that has had the cholesterol removed through a process patented by the plaintiff. Plaintiff had installed that patented process at its supplier’s facility in Canada. The Canadian supplier was the plaintiff’s sole supplier of that product.

Due to an outbreak of mad cow disease, the USDA prohibited any importation of beef from Canada. At the time of the ban, the plaintiff had ordered and its supplier had manufactured, packaged, and loaded onto a truck, a large shipment of the beef product. Due to the ban of Canadian beef, the plaintiff lost that shipment, and was unable to fill its customer orders for many months while it set up a new supplier with its patented cholesterol-removing process. The plaintiff also lost its best customer due to its inability to fill orders. The plaintiff submitted a claim to its insurance carrier under a policy that included property and business interruption coverage.

The claim was denied. The policy provides coverage for loss of business income when there is a direct physical loss to the insured’s property. The insurer argued that since there was no evidence that the beef product that the plaintiff wanted to import from Canada had any mad cow contamination, there was no direct physical damage to the plaintiff’s property and so there was no coverage. The U.S. District Court and the 8th Circuit Court of Appeals agreed, finding that since the policy specifically stated that there was coverage only when there is direct physical loss to the insured’s property, and there was no evidence of any damage to the insured’s property in this case, there is no coverage.

GOLF PRO NOT COVERED BY GOLF COURSE LIABILITY POLICY WHILE TEACHING A GOLF CLASS AT THE PRIVATE SCHOOL THAT OWNED THE GOLF COURSE.

Travelers Property Casualty Co. of America v. General Casualty Ins. Cos., United States Court of Appeals, 8th Circuit. Filed October 13, 2006.

The golf course employed a golf pro to manage its golf shop year around, and also to manage the teaching programs at the golf course, including golf lessons, and to otherwise market and promote the golf course. During the winter months, the golf pro’s duties were limited to managing the golf shop for 20 to 25 hours per week. The golf course is a corporation whose shareholder is a neighboring Catholic school. During one winter, the golf pro agreed to teach a golf glass at the Catholic school.

During one of those classes a student was hit in the head with a golf ball suffering a severe and permanent brain injury. Her parents commenced a lawsuit on her behalf, suing the Catholic school and the golf pro. The golf pro, through his PGA membership, had general and excess liability coverage while teaching the game of golf. The golf course had a policy that covered the golf pro while he was in the scope of his employment with the golf course and while he was performing duties related to the conduct of the golf course’s business. The PGA carrier defended the golf pro in the underlying action, under a loan receipt agreement, and that lawsuit was eventually settled. The PGA carrier and the golf pro then brought action against the golf course’s insurer for the defense costs. The issue on appeal was whether or not the golf pro was furthering the golf course’s business while he was teaching the class at the Catholic school.

Applying Minnesota law, the 8th Circuit concluded that the golf pro’s arrangement with the Catholic school was separate from his job duties as the golf pro at the golf course. The court concluded that the fact that the golf course was owned by the Catholic school was irrelevant, as they are separate legal entities. Further, even though the golf pro’s duty at the golf course included marketing and furthering the interests of the golf course, there was no evidence presented that he was accomplishing that by teaching the golf class at the neighboring school, even though it was possible that taking the class would spur the interest of the students in golf and cause them to later join the golf course.

The court found that this was unlikely since this was a boarding school and the grade school and high school students were unlikely to become members of the golf course. Thus, based upon the allegations in the complaint in the underlying lawsuit and the extrinsic evidence available to the golf course’s insurer at the time the tender of defense was made, there is no reason for the golf course’s insurer to conclude that the golf pro was acting in the course and scope of his employment at the time he was teaching the golf class at the school, and so they were not in error by failing to accept the defense in the underlying action.

VICARIOUS LIABILITY UNDER THE CIVIL DAMAGES ACT, FOR ILLEGAL ALCOHOL DISTRIBUTION, IS LIMITED TO ALCOHOL LICENSEES.

Urban v. American Legion Dept. of Minnesota, Minnesota Supreme Court. Filed October 19, 2006.

One member of the plaintiff’s family was killed and two members were seriously and permanently injured when their vehicle was hit head-on by a drunk driver going down the wrong side of the highway. The plaintiffs commenced an action against the American Legion Post that had served alcohol to the drunk driver. The plaintiffs also sued the state and national American Legion organizations asserting vicarious liability on the part of those entities. The state and national American legion entities were granted summary judgment and the Court of Appeals and the Supreme Court affirmed. The American Legion has a national entity that was created by the federal government and it also has an entity in each state, as well as local posts. East post, state, and national organization is separately incorporated, have separate leaders, and have separate constitutions and by-laws.

The individual posts pay dues to the state entities who then pass on dues to the national organization. The membership dues are owed by each individual member of each post. If the individual members failed to pay the membership dues the post may raise money to cover those dues and some posts do that via sales of alcohol. The civil damages act statutorily created a cause of action that did not exist at common law. The plaintiffs argued that the common law doctrine of respondeat superior applies to the civil damages act. The Supreme Court disagreed, noting that the civil damages act specifically states that the alcohol licensees are responsible for the sale of alcohol by their employees.

If the legislature intended for respondeat superior to apply to the civil damages act, there would be no need to add the statutory provision making the alcohol licensees responsible for the actions of their employees. Since there is a presumption that every statute has a purpose, the fact that the legislature added the vicarious liability provision for licensees, therefore excludes any additional vicarious liability for any other entity, such as the state and national American Legion entities in this case.

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